Well after a long run of relatively smooth sailing the last few months have thrown the market a curve ball. In times of increased volatility we often have clients ask us two questions: “What is going on with these markets?” and “How safe are my investments?” To answer these questions we’ve asked Jamie Galbraith to write her first ever blog post!
So what is going on with these markets?
This is a very good question, and it’s a lot to cover in a single blog post but I’ll try to keep it short and sweet. Since the financial crisis in 2008 the markets have actually been on a long steady climb upwards. That is 10 years of good returns and relatively low volatility. The last few month of 2018 have been less smooth, with some big drops in October and November, and the markets down 5-10% on the year. With such a long run of growing markets many investors are worried about when the other shoe will drop. Despite this increase in nervousness, most of our analysts are predicting another year or two of continued economic growth before the next recession. It is important to remember that recessions are a normal part of the business cycle, and our analysts believe that this one will be significantly smaller than what was experienced in 2008.
Furthermore, a lot of the movement in the markets is driven by what we call Headline Volatility. There are some interesting things happening south of the border, and across the pond. From trade wars with China to Brexit negotiations, changes in global politics are causing investors to alternate between confidence and fear. Despite the uncertainty of government policies both at home and abroad, the actual health of the economy, and the companies operating within it remains lively. With equities trading at a discount some days, it might be a good time to make some strategic buys, if you have the stomach for it.
The take away from all of this is, that although volatility has returned to the markets, we are still optimistic that growth will continue for a year or two more. Although a recession is on its way, it is a normal part of a healthy business cycle and will be an opportunity to pick up some quality positions at a reduced price. So with that in mind, on to the next question:
“How safe are my investments?”
The answer is: in the long run, very safe. In order to explain why this is, I will have to go into a bit of detail about how we build your portfolios. We work hard to ensure that each of our clients are comfortable with the amount of volatility to which they are exposed. Often clients believe that they are comfortable with the ups and downs of the equity markets only to have these kind of market swings test their commitment to those beliefs. It is easy to have a high risk tolerance when the markets are moving up, and a little bit harder to stay on board when the markets begin to fall. It is, however, most important to stay on board when markets decline!
While we are always happy to move people into more conservative portfolios we prefer not to make drastic changes at the bottom of the market. Our advice is most often to hang in through periods of poor performance (provided the fundamentals of companies you are invested in remain intact). When the markets are back to normal, and you have reaped the rewards of the strong performance that follows a dip, then we can begin transitioning equities into fixed income and rebalancing the portfolio so it will be a smoother ride for you the next time the markets start to act up.
Regardless of your risk appetite Wetherall Wealth Management is committed to keeping your assets safe through all stages in the business cycle. We do this a few different ways:
- We rely on the advice of our analysts whose sole job is to monitor the economy, pick safe, high-quality stocks, and provide us with the information we need to make the right decisions for you.
- We work to diversifying your portfolio. By having a variety of different products, in different geographical locations, and in different sectors of the economy we are able to reduce risk. This is essentially “not putting all your eggs in one basket” and is an important part of what we do.
- We focus on your long term goals and the best way to meet those goals, rather than chasing the highest returns. By thinking long term we are able to choose the products that are right for you in the long run. We don’t believe in get rich quick. Instead we focus on growing and protecting your hard earned savings.
Through these strategies we are able to help our clients reduce risk in their portfolios, keeping their assets safe for the long-term, and still allowing their investments to grow.
I hope this post has answered some of your questions about the volatility in your portfolios. If you would like to discuss your specific situation, as you know we are always here to chat.